Last September, EEF published its report – ‘The Route to Growth – An Industrial Strategy for a Better Balanced Economy'. This called on the government to develop an industrial strategy that would get every part of it behind the measures that would develop a stronger and better balanced economy. A year later we have published our assessment of the progress that has been made.
Progress has been made. The economic news has certainly been better recently and from last year's Autumn Statement through to the Budget and up to this year's Spending Review, the government has stepped up the pace on actions to support increased investment, more exporting and stronger economic growth. So is it a case of job done or job at least half way done and getting on with implementing it?
A closer look at the growth figures and EEF's Four Growth Ambitions suggests that there is still a long way to go to create the more balanced growth that deliver sustained growth and improvements in living standards. And, although the government has done a lot more to encourage investment in new equipment, skills and new products and services, it has still not done enough to spell out its economic priorities and ensure that every part of it is machinery is getting behind delivering them
There are four reasons why this is critical:
- Risks. Though our economy looks a bit stronger, it still faces significant risks. These range from the deep-rooted problems with which many eurozone economies are grappling, the growing headwinds buffeting some emerging economies and closer to home the danger that any improvement in credit conditions won't be sufficient to ensure that stronger investment intentions get over the line.
- Rebalancing is hard. For too long, we have relied on consumer spending and public spending to drive growth. Turning this round is not easy. In the last three years, business investment has contribution an annual average of just 0.06 percentage points. And despite a favourable exchange rate, amongst similar size economies three of our closest competitors - France, Italy and Spain- have all seen trade make a stronger contribution to growth.
- Inconsistency is still a problem. On all four of EEF''s Growth Ambitions, we can point to government action to help achieve them. But our assessment suggests that we are currently only on track to meet the first of these related to innovation – more companies bringing new products and services to market. This is the only area where we have seen a consistent focus from government, cross-party agreement on what needs to be done and the stability of policy that gives it a chance to work. In all the other areas – globally focused companies expanding in the UK, a lower cost of doing business and a skilled and flexible labour force - positive action on one front has been undermined either by other measures that have either pulled in the other direction or have failed to support it sufficiently.
- Maintaining the focus. Rebalancing is difficult, elections are getting closer and politics will inevitably be getting more complex. But achieving is vital to lay the foundations for lasting economic growth, higher productivity and rising living standards. And it is not a job that will get done in one year or one Parliament. So it is vital to maintain the focus that will give convince business that all the main Parties are in the longer-term.
In the coming months, a commitment to these Growth Ambitions is vital to deliver the clarity and consistency of focus we need to build a stronger better balanced economy. But there are also some key priorities on which the government needs to deliver:
- Getting competition in business banking going and get more businesses engaging with banks by measures to improve full account portability, increase incentives to switch accounts and to reduce barriers to entry for Challenger banks.
- Developing a more strategic approach to Infrastructure investment by accepting Armitt Review recommendations for Infrastructure Commission
- Taking action to improve competitiveness of electricity prices paid by business through tight control of support for low carbon investment, making a long-term commitment to support for energy intensive industries and addressing unilateral costs imposed by Carbon Price Floor
- Speeding up progress on deregulation, particularly ion employment and climate and environment
- Developing plans to secure greater commitment across EU for reduced regulation and for implementing EU regulation in lighter touch way
- Building consensus to reform public funding of skills investment to put money in hands of customer.